Download Trade grew rapidly in the 1990s and 2000s (Figure 1), driven by a

ANNUAL 2012 SESSION OF THE
PARLIAMENTARY CONFERENCE ON THE WTO
Back to basics: Connecting politics and trade
Geneva, 15-16 November 2012
Organized jointly by the Inter-Parliamentary Union and the European Parliament
Item 2
PC-WTO/2012/2-R.2
16 October 2012
TRADE AS A TOOL OF ECONOMIC GROWTH,
JOB CREATION AND POVERTY ALLEVIATION
Discussion paper presented by Dr. P. Rübig (European Parliament)
1.
Since the 1990s, trade has grown very fast, driven by a mix of technological change and
policy reforms. Global merchandise trade in 2011 was around EUR 14 trillion, more than five
times its value in 1990 (USD 18.2 trillion, up from USD 3.5 trillion in 1990). Due to the global
economic crisis, this pace has slowed down in recent years. With the exception of 2009 trade
growth has still remained positive and much bigger than economic growth. This underlines
clearly that trade is an effective engine for growth. The current landscape is marked by a lack
of substantial progress in the multilateral negotiations at the World Trade Organization, while
there is a flurry of plurilateral and bilateral negotiations. Nevertheless, hope remains in some
areas of the Doha Round, in particular in the field of trade facilitation, despite the rise of
protectionist measures in some countries. Generally, the benefits of opening to trade and
investment seem to have been forgotten and trade liberalisation appears to have fallen off the
agenda of many policy makers.
2.
Trade is one of the main pillars fostering growth, job creation and poverty alleviation. It
is an indispensable element of political strategy in order to ensure the achievement of these
three objectives.
Trade and growth
3.
Historically, no country in the past 60 years has sustained consistently high levels of
growth without greatly expanding its exposure to international trade and investments. Some
success stories, like South Korea or Singapore or even a bigger economy like China where 400
Million people were lifted out of poverty (since reforms towards market economy structures
started in 1978), are astonishing and the economic strategies of such countries have heavily
relied on trade.
4.
Trade and investment liberalisation affects growth positively in a number of ways. Trade
allows countries to use their comparative advantage. Producers can reach bigger markets and
increase the scale of their production. They can also import cheaper goods and services and
find new sources of capital. Moreover, consumers can buy a wider range of goods and services,
mostly at lower prices. Trade also contributes to passing on the knowledge and the
technologies developed anywhere in the world.
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5.
A trade policy aiming at a gradual and progressive opening is more likely to contribute to
economic growth than alternative protectionist policies. Economists share a basic consensus
according to which trade, income and productivity levels are positively and strongly correlated,
with robust evidence to support this. The OECD has calculated that an increase of one
percentage point in the share of trade in GDP raises income levels by between 0.9% to 3%.
Besides, trade has remained a strong contributor to growth throughout the crisis even when
other economic factors have weakened.
6.
According to the World Bank’s Growth Commission, over the last 60 years there have
been 13 “star” performers in the world – countries that have grown in real terms by more than
7% per year for at least 25 years. Sustained growth and development have rarely, if ever, been
achieved in countries that have refused to open up to trade and investment.
7.
Stability, government credibility and good governance, savings and reliance on markets
are also important. Each country has indeed its own unique set of conditions for achieving
economic growth. However, an export-led strategy has proved to be one of the most successful
ways of ensuring development and employment.
8.
Trade liberalisation needs to be supported by the right mix of accompanying measures.
Education, investments into infrastructure, well-functioning governance structures, and
initiatives facilitating self-employment and supporting SMEs are all together significant for
positive effects of trade liberalisation. In this regard, the respect of fair wages and salaries,
human rights as well as democracy are important cornerstones that should guide decisionmakers at all levels. Improvements of all these elements would be beneficial for economies at
the global scale to be able to harvest the full benefits that result from integration into the global
trade and investment system. It will also influence the type of growth that derives from
integration into the international trading system, in particular whether it appears to be socially
sustainable and its effect on the environment.
9.
Concluding the long-running Doha Round of trade negotiations would provide a boost
to the world economy. Every option that brings us closer to reaching an ambitious conclusion
of the Doha Round must be pursued. In this context, opportunities to achieve concrete results
seem to be the most promising in the field of trade facilitation. Such a development would
create greater security of market access, through the negotiation of policy disciplines.
Maintaining an open trade regime whilst resisting protectionist temptations represents an
important foundation for the global recovery and the new matching of global supply with
demand. This is especially true for developing countries as so many depend on exporting to
foreign markets to finance growth-stimulating imports of goods, services and technologies.
10. Since growth depends to a high degree on trade, and as tariffs have largely decreased
throughout the world since the creation of the GATT, we are faced today with a more complex
trade agenda: international trade negotiations increasingly revolve around behind-the-border
regulatory policies, not just import tariffs, as in the case of the liberalisation of services. The
international trade and investment policy agenda spans a plethora of policy areas and that is
maybe one of the reasons why the power of trade for growth is sometimes underestimated and
why negotiations are so difficult.
Trade and employment
11. The investment and trade liberalisation and technological innovation have globalised the
labour market. The overall effect of trade liberalisation on the labour market is positive. It can,
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however, create substantial reorganisation in the structure of the labour market encompassing
displacement of jobs from specific sectors to other sectors where a significant number of new
jobs are created. As the bulk of employment is within SMEs, the continued expansion and
internationalisation of SMEs is an essential mechanism which must be supported by targeting
all the barriers that specifically affect SMEs on the international stage.
12. Meanwhile, the internationalisation of the production chain and the increasing
integration of large economies that benefit from a surplus in low-wage workers have to some
extent reinforced public concerns. However, jobs affected by trade openness are not entirely
lost; they are often only displaced to other sectors or areas of activities. Indeed, the OECD has
witnessed in its member countries a stronger rate of job turnover in the 1990s up to 2005 than
ever before and trade has contributed to this trend.
13. The current economic landscape is marked by more and more international mobility of
goods and capital, but workers are not yet equally able to move across borders. To help
affected displaced workers is more necessary than ever for the sake of efficiency, equity and
public economy. Therefore, some kind of compensation mechanisms should ensure that
workers receive proper support in order to be able to re-orientate their careers and improve
their chances of finding another position. This should be done in a way reflecting the special
talents and needs of the persons affected. Such workers should be encouraged to find jobs in
expanding sectors rather than staying in a declining industry or remain unemployed.
14. Besides, no trading nation should engage in social dumping through violations of labour
standards. Compliance with existing international labour standards and promotion thereof
across the world is particularly important for a level playing field in international trade. In this
regard, solutions have to be found within the multilateral system of the International Labour
Organisation (ILO). Additionally, a functioning social dialogue appears to be the necessary tool
to smoothen the transition from workers into new jobs and alleviate the adverse effects of an
internationalisation of trade,
15. When these conditions are met, open markets can create important opportunities on a
global scale.
Trade and poverty reduction
16. Trade has been an engine of growth in many countries, even though this has not always
materialised into an immediate poverty reduction. The degree to which trade contributes to
poverty reduction varies considerably across countries. As explained in the recent work of the
ILO and the WTO on making globalisation socially sustainable, the effect of international trade
on wage differences and therefore on poverty is "rather nuanced". Several developing countries
have experienced in the last decades higher inequalities at the same time as they opened up to
international trade. However, this does not mean that trade is solely responsible for this
development, since multiple factors play a role in this regard.
17. International experts, including the World Bank, had assessed at the start of the Doha
Round that this round has the potential to lift some 100 million people out of poverty.
Therefore, through more international trade we have it in our hands to contribute significantly
to poverty reduction all across the globe.
18. Improving the competitiveness of Least Developed Countries through reducing obstacles
to their export performance, the WTO encouraged the creation of the Aid for Trade initiative.
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Its goal is to tackle the supply-side constraints that severely limit some countries' ability to
benefit from the multilateral trading system. Depending on the specific country context, this
could require further investments in human capital and rural infrastructure, and access to credit
and technical assistance to promote macroeconomic stability. More competitive developing
economies should have fewer difficulties in accepting further trade liberalisation. This
approach will also help to generate a more inclusive growth, where the benefits of
international trade are also extended to a greater degree to remote, rural or simply poorer
regions.
19. In addition, there are other challenges, such as good governance, administrative and
legal structures, and modernising the structure of the economy, which might hinder wealth
generated by trade from benefiting all parts of the economy equally For example, in many lowincome countries the informal sector represents a very high proportion of the domestic
economy and cross-border trade. Informal enterprises find it much harder to gain access to the
necessary financing, technology and contracts to be active internationally and to become
internationally competitive. Another example is the lack of a proper tax system and collection
due to bad governance and corruption. It prevents the increased wealth generated by trade
from being properly channelled throughout the economy.
Conclusion
20. Trade is a crucial element to create growth and jobs, as well as to reduce poverty across
the globe. Generally, it appears as a conditio sine qua non for countries to grow out of poverty
while fighting for the creation of new jobs. Hence, international trade should be promoted on
different levels: multilateral, plurilateral and bilateral, agreements do not exclude, but
complement each other. The efforts undertaken via the World Trade Organisation for
achieving international growth and poverty reduction are more necessary than ever. All
possibilities for improvement need to be explored and pushed forward on to the WTO
negotiation agenda starting above all with trade facilitation with the potential to facilitate the
integration of all into international trade. Thus, concrete results in the on-going Doha Round,
in particular with regard to trade facilitation, seem to be the appropriate answer in times of a
global economic crisis.